Auditor-general warns on stability of Vic TAFE

Against all the evidence, the Victorian government insists that, despite a few local difficulties, Victoria’s TAFE system is in fine fettle. The Victorian minister recently told a conference the apparent troubles besetting TAFE are the invention of a “misinformed media”. But according to the the State’s auditor-general, the troubles are very real: TAFEs are facing a “significant decline” in financial stability due, in part, to State Government funding cuts.

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Net surplus/deficit by TAFE and changes in funding sources from 2012 to 2013.

A report tabled in the Victorian Parliament found the state’s 14 TAFEs generated a net deficit of $16.2 million, a decrease of $74.8 million from the $58.6 million surplus in 2012. The results were affected by a decrease of $116.3 million (15% ) in government grants (comprising reductions of $95m in state operating grants and $14.5 m and $6,7m in state and commonwealth capital grants). The decrease was partially offset by an increase in student fee revenue and reduced costs.

The report notes that changes to the legislative framework and funding model, announced in May 2012, became a catalyst for greater reliance by the sector on student tuition and other fees rather than on government grants. The changes have had a significant impact on TAFEs, specifically:

From 1 January 2013 the full impact of the previously announced changes to the funding model came into effect and most TAFEs took action to alleviate expected revenue shortfalls. As a result, the cost to students undertaking some vocational education and training courses increased, contributing to a decline in student participation. New student commencements were down in 2013 compared to 2012, while total student numbers also declined. TAFEs also reacted by reducing or changing course offerings.

The sector also focused on reducing costs through staff redundancies. The full impact of action taken to reduce employee numbers should be realised over the next two years.

Four TAFEs closed campuses between 2012 and 2013.

Government capital funding declined by 36%, and most TAFEs reduced ‘non-essential’ capital expenditure, resulting in substantially reduced capital expenditure across the sector in 2013.

The auditor reports that these results suggest that many TAFEs have yet to effectively adapt to changes to the funding model announced in May 2012.

The changes were designed to make vocational and education training funding more sustainable with a view to creating a sector characterised by sustainability, high quality and direct industry engagement (emphasis added for purposes of irony).

The auditor-general found five TAFEs, – Advance, Central Gippsland, NMIT, South West and William Angliss – are considered to be at high risk financially.

“This means that there are immediate or short-term financial challenges at these TAFEs that need to be addressed,” the report said.

“Consequently there has been a significant decline in the financial sustainability of the sector.”

The report raises concerns about NMIT’s ability to continue as a going concern. NMIT had a net operating deficit of $31.7 million and the report said without remedial action it will have “substantial cash flow deficits” for the next two years. The department of education has agreed to assist NMIT to secure bridging finance of $16 million to assist with its solvency and restructuring.

Other organisations, including Chisholm, Goulburn Ovens, Kangan and Sunraysia TAFEs reported improved financial results, in part because of staff redundancies, reduced costs and changed course offerings.

“Early adoption of these initiatives has made these TAFEs more financially viable, and they are to be commended,” the auditor-general said.

Between 2009 and 2013, total fees from domestic students increased by 125.2%. The increase was due to increased TAFE fees for some courses, partially offset by a decrease in domestic student numbers.

New enrolments for domestic students decreased in 2013 to 196 500 (208 400 in 2012).

International student fee revenue has fluctuated year on year, but overall has decreased by 26.4% over the five-year period. However, this revenue stream continued to be important to TAFEs. In 2013 it generated $92.2 million ($105.5 million in 2012), or 47.2 per cent of total student fee revenue for the year. Student fees from offshore operations comprised $33.7 million, or 36.6% of international student fee revenue ($40.7 million in 2012).

Although they represent only around 5% of total student numbers, international students generate substantially higher revenue per student than do domestic students, and are an important factor in the ongoing viability of individual TAFEs and the sector.

New international student enrolments increased to 7 400 in 2013 (6 500 in 2012).

The auditor took a swipe at the education department, blaming its “lack of appropriate direction” for inconsistent financial reporting which made it difficult to compare TAFEs with each other or through the years.

Students have seen a drop of over $100m in state government operational funding to TAFE, as well as massive fee hikes, large-scale staff sackings and the outsourcing of teaching.

But skills minister Nick Wakeling said the previous government had “bungled” its 2009 creation of an open training market. “Labor failed to provide any form of assistance to help TAFEs adjust,” he said.

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The Scan is produced by Inter Mediate, a Melbourne based public policy consulting practice, with a focus on education and training issues, particularly higher education.
The Scan reviews topical issues in the tertiary education sector and places them in a broader context.